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March 19, 2013

'Cyprus Set to Reject Bailout'

This is from Francesco Saraceno, "an Italian born economist working in
France":

Cyprus. Been There, Seen That: A small country is on the verge of
bankruptcy. It is so small that the amount of money needed to save it (17bn
euros) amounts to less than 0.12 per cent of the eurozone GDP (no typos here. It
is around 30 euros per European citizen).

Been there, seen that. Just three years ago in another small country, Greece. At
the time, procrastination, self interest, ineptitude, unpreparedness, made the
small problem become huge. And we are all still paying the bill. The Greek
crisis management was so successful that our leaders are happily embarking in
the same dynamics: improvised, dangerous, half-baked solutions, supposedly
designed to avoid free riding (the protestant syndrome, once again) and in fact
destabilizing the whole system.

There is no need for me to repeat what has been understood everywhere except, as
usual, in Berlin, Frankfurt and Brussels...

There is really very little to add to this. Except maybe that Nick Malkoutzis is
even too nice to Germany. It is interesting to notice that most of the time, in
battered countries, Germany’s banks are among the top creditors. In this
particular case, the exposure of German banks is 5.8 billions, exactly the
amount that the tax should levy. Certainly a coincidence, but still…

I remember, a few years back, Joe Stiglitz accusing the IMF and the American
treasury of imposing unnecessary austerity to crisis countries, in Latin America
and in East Asia, with the objective to buy time for their banks to minimize
their losses (or often times to cash their profits). The resemblance with the
current situation in Europe, is worrisome. Very.

The latest:

Cyprus Set to Reject Bailout, Citing Tax on Bank Deposits: Cyprus’s
Parliament is likely to reject an international bailout package that involves
taxing ordinary depositors to pay part of the bill, President Nicos Anastasiades
said Tuesday, despite a revision that would remove some objections by exempting
small bank accounts from the levies. ...

Should the measure fail in Parliament, Mr. Anastasiades and his E.U. partners
would have to return to the negotiating table. Analysts have also raised the
possibility of bank runs and a halt in liquidity to Cypriot banks from the
European Central Bank if the measure did not pass.

The bailout plan, negotiated over the weekend, has aroused harsh criticism in
many quarters for its unprecedented inclusion of ordinary bank depositors —
including those with insured accounts — among those who would have to bear part
of the cost. ...

The managing director of the International Monetary Fund, Christine Lagarde,
said Tuesday she was in favor of modifying the agreement to put a lower burden
on ordinary depositors. ... She urged leaders in Cyprus to quickly approve the
plan... She complained that critics have not recognized how much the agreement
will force Cyprus banks to restructure and become healthier. ...